expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
LY X OR E TFs: QUA LITY INCOM E
“Stock market fashions may come and
go. But buying higher quality companies
that pa y sensible and sustainable dividend
yields is an investment strategy that has
stood the test of time. In our opinion such
companies should form the back-bone of
any sensible portfolio.”
An drew La pthor ne
G lobal Qu ant itativ e R e s e a rc h
Strategis t a t S G CIB
The importance of re-investing dividends is one of the first rules of
investing, and one that has proven its worth time and time again.
However, dividends are one of the first things to be cut when
markets are stressed. So how can investors access a Dividend
Yield that is attractive now, and will stand the test of time?
The Quality Income Indices created by Andrew Lapthorne, the
Global Quantitative Research Strategist at Societe Generale
Corporate & Investment Bank provide an income strategy with a
difference. These indices are designed to not only provide a
high yield now, but one that can be sustained over different
economic cycles. They do this by focusing on ‘High Quality’
companies, whose financial strength makes them more likely to
sustain their dividend if markets fall, and grow it when they rise.
These ‘High Quality’ companies are some of the most stable
companies in the world. In order to be selected they must
have a robust underlying business, be from the developed
world, and be able to demonstrate a financially strong
balance sheet.
The allocations are reviewed by the Quantitative Strategy team of
Societe Generale and updated each quarter to ensure that each
company continues to meet the selection criteria.
THIS COMMUNICATION IS FOR PROFESSIONAL CLIENTS
AND SOPHISTICATED RETAIL CLIENTS IN THE UK.
This communication uses quotations from Andrew Lapthorne.
Andrew Lapthorne is part of Societe Generale’s Research
department which is subject to regulatory provisions designed
to promote the independence of investment research. This
publication should be treated as a marketing communication
and should not be treated as a research report issued by
Societe Generale’s Research Department. See page 11 for
more information.
Societe Generale Listed Products | 0800 328 1199 | listedproducts@sgcib.com | www.sglistedproducts.co.uk
1
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
S G GL OBA L QUALITY
I N COME STRATEG IE S
Andrew Lapthorne, commented that “global equity markets
have delivered low returns over the past decade, and that equity
market volatility has driven many investors away from equities
and into bonds”. Andrew maintains that quality income stocks
can provide the bond-like characteristics of income and capital
safety, but also offer scope for capital growth like equities. Over a
period of nine years Andrew refined his Quality Income Strategy,
and in 2012 he launched the Societe Generale Global Quality
Income Index (SGQI) to enable investors to access a portfolio of
high quality global companies in one simple Index.
Following the success of SGQI,
the team have now launched the
SG European Quality Income Index
(SGQE), which follows the same
strategy as SGQI, but instead of
investing in a universe of global
stocks, it restricts investment to high
quality European stocks.
CHART 1: Compounding effects of dividend yield has dominated
returns in the long term (1970-September, 2013)
7.0
5.2
5.8
5.0
5.0
4.0
4.7
5.2
3.4
3.0
1.0
-1.0
-3.0
UK
US
France Germany Australia Canada Japan
Dividend Yield
Multiple expansion
Dividend growth
Total annualised returns
Source: SG Cross Asset Research. September, 2013
CHART 2: Realised income of high yield stocks according to
balance sheet strength (September 93 to September 2013)
5.5
5.0
4.5
4.0
3.5
3.0
2.5
The philosophy of SGQI and SGQE is based around the following
three principles;
Higher yield with stronger balance sheets
1. Dividend Yield is the driver of equity returns
A key philosophy of the Quality Indices is that dividend yield is the
biggest driver of equity returns. As Chart 1 shows, dividends have
dominated long-run equity returns in most major equity markets
between1970 – 2013. This would suggest that the key to long
term growth is not in capturing dividend growth or equity returns,
but a strong dividend yield.
Higher yield with weaker balance sheets
Source: SG Cross Asset Research. September, 2013
CHART 3: High Quality stocks are systematically undervalued
(September 93 to September 2013)
700
2. Quality stocks are less likely to cut dividends
Quality Indices focus on companies which are deemed
economically able to sustain the payment of high dividends.
Chart 2 opposite shows that historically higher yielding stocks
with a stronger balance sheet have typically maintained a higher
dividend than those with a weaker balance sheet where the
dividend may have been cut. We look at how we define balance
sheet strength on page 4.
3. Less volatile equity returns
These are not just dividend compounding machines. The high
quality stocks selected for both SGQI and SGQE are some of
the most stable companies in the world. This stability and lack
of game-changing near-term performance has deemed them
“boring” by some investors. But for those looking for a less
volatile investment, they represent an opportunity to access a
more stable, and typically undervalued area of the equity market.
On page 4 we look at what makes a ‘High Quality’ company.
600
500
400
300
200
100
0
High Quality Equities
Low Quality Equities
Source: SG Cross Asset Research, October, 2013
The value of an investment may fluctuate. The figures
relating to past performances and simulated past
performances refer to past periods and are not a reliable
indicator of future results. This also applies to historical
market data.
2
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
W H Y N O T JU ST INVE S T IN HIG H Y I E LD S B O ND S ?
Some investors have flocked to High Yield bonds in an effort
to beat the low returns available on Gilts or AAA bonds. The
potential yield available on High Yield Corporate Bonds for
example may be higher than SGQI or SGQE. However, by
design, ‘High Yield’ bond indices contain the lowest quality
companies in the market, whereas SGQI and SGQE seek
exposure to higher quality companies. This creates a very
different risk profile for the Quality Income Indices. Also, the
absence of coupon growth exposes fixed income investors to
inflation risk, whilst for equity investors dividends typically track
inflation higher as companies can increase their dividend yield
as markets rise.
CHART 4: Maximum loss on assets (1990 – 2013)
60.0
Maximum Loss (%)
50.0
40.0
30.0
20.0
10.0
0.0
Quality
Income
Quality
Equities
High Yield
Equities
Equity
Markets
Government
Bonds
AAA Bonds
High Yield
Bonds
Source: SG Quantitative Research/ Equity Quant, FactSet. September, 2013. Past performance is not a reliable of future performance. Portfolio presented assumes no
transaction costs.
Chart 5 compares the quality of companies used within the SGQI Index and those of the iShares iBoxx HY, which is used as an
example of a High Yield bond exposure. As you can see from the chart, SGQI typically invests in higher quality companies.
CHART 5: Quality of company invested in
25.00%
20.00%
15.00%
10.00%
5.00%
/C
C
3
C
C
C
-/
C
C
C
C
+/
C
aa
1
aa
B2
B/
a3
BB
-/
B
1
Ba
+/
Ba
B/
BB
SG Quality Income
BB
a2
3
A/A
A1
A+
/
2
Aa
AA
/
AA
A/
Aa
a
0.00%
IShares IBOXX HY
Source: SG Cross Asset Research, Bloomberg, October, 2013. Past performance is not a reliable of future performance.
WH AT D O THE INDICE S INVE S T I N?
SGQI and SGQE aim to provide an equally weighted portfolio of between 25 and 75 high quality companies from either the
global (SGQI) or european (SGQE) stock markets. Stocks are selected according to the following criteria:
„„ Listed on a regulated market
„„ Not a financial company
„„ Have a free float adjusted market capitalisation of at least US$ 3bn (SGQI) or US $1bn (SGQE)
„„ Include a liquidity filter (six month average daily traded value of at least 1M EUR)
„„ Have always a 4% dividend yield entry level
3
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
HO W D O TH E INDICE S DE TERMIN E WHI CH S T O CK S ARE I NCLUDE D?
For both SGQI and SGQE, the stocks are selected according to a 3 stage process which is designed to assess the
profitability, operating efficiency and balance sheet strength of the company:
1. Q uality
2. s trength
Stage 1: A Piotroski quality score of 7 or better
The first stage of the stock selection process is to assess the financial strength of a company
based on its profitability, level of debt, working capital, source of funds and operating
efficiency. In order to do this the Piotroski scoring system is used. First published in 2000,
Piotroski’s nine-criteria stock-scoring system can be used to evaluate a stock’s financial
strength using data from the company’s financial statements. One point is awarded for each
test that a stock passed with a maximum possible score of 9. In order to be selected for the
Index, the company must score 7 or better on the Piotroski scoring system. The table below
summarises the main measures used, and describes how these are calculated.
3. yield
Assessment
Profitability
Debt, working capital
and source of funds
Definition
Calculation
Point Awarded?
Positive Return On Assets (ROA).
Net Income divided by the total
assets of the company.
If last year’s net income is positive.
Positive Cash Flow from
Operations (CFO).
Cash Flow from Operations
divided by total assets.
If last year’s cash flow is positive.
Improving profitability.
Positive year-on-year change in
ROA.
If last year’s ROA exceeds the prioryear’s ROA.
Sales driving profit growth. i.e.
what is the quality of earnings.
Was the change in CFO greater
last year?
Decreasing debt.
Negative year-on-year change in
the ratio of long-term debt to total
assets.
If the ratio of long-term debt to
assets is down from the previous
year.
Increasing working capital.
Positive year-on-year change in
the Current Ratio (CR) of assets
to liabilities.
If the ratio of assets to liabilities has
increased from the prior year, it is a
sign of increased working capital.
No new shares issued.
No year-on-year increase in the
number of shares issued by the
company.
If the number of shares outstanding
is no greater than it was a year ago.
Increase in the Gross Operating
Margin.
Positive year-on-year change
in the Gross Operating Margin
(GOM).
If full-year GOM exceeds the prioryear GOM.
Increasing Turn Over (A sign of
increased productivity).
Increase of sales relative to
the size of assets held by the
company.
If the percentage increase in sales
exceeds the percentage increase in
total assets.
Operating efficiency
If last year’s CFO exceeds Net
Income for that year
Source: Societe Generale, October, 2013. Based on the Piotroski quality score founded in 2000.
Stage 2: Balance sheet strength
The universe of stocks that survives the scrutiny of the
financial strength testing is then assessed according to their
balance sheet strength. In order to make this assessment,
the SG Research team use a widely known measure called
the ‘Distance to Default Model’, which is a mathematical
measure that implies that a company is worth nothing and
will default (i.e. go bankrupt) at the point that the value of
its debt is greater than the value of its assets. According to
the model, by looking at the current value of a company’s
assets and how volatile they are, and comparing this to the
current value of the company’s liabilities, it is possible to
determine how likely a company is to default. Only those
deemed unlikely to default will be selected.
Stage 3: Selection of stocks with a high dividend yield
The final filter of the stock selection process is the expected
dividend yield. Both SGQI and SGQE target companies
paying a dividend yield of at least 4% at the point of
selection. Where available, the one year forward dividend
yield from the Institutional Brokers’ Estimate System (IBES)
is used in order to establish the expected dividend yield.
Where it is not available through IBES, the reported dividend
yield stated by Factset fundamentals is used instead.
The Indices are rebalanced quarterly and weights are reset
to ensure equal weighting.
4
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
T HE IMPORTANCE OF QUALITY
& IN C O ME
Chart 6 uses the SGQI Index to demonstrate the importance
of using both ‘Quality’ and ‘Income’ filters to select stocks. In
this chart we compare the simulated performance of the SGQI
Index with a number of other possible groups that could have
been created from the same equally-weighted universe of global
stocks that SGQI starts with i.e. stocks that have a free float
market capitalisation of US$3bn and are non-financial.
The “High Yield Equities” selection consists purely of the top
20% of stocks from the SGQI universe according to dividend
yield and ignores the ‘Quality’ screening. The “Quality Equities”
selection consists of the quality stocks as defined by the Piotroski
score of 7 described earlier, and ignores their dividend yield. The
overall ‘Equity Market‘ consists of the full portfolio of global ex
financial stocks with a free float market capitalisation of US$3bn
and ignores both ‘Quality’ and ‘Yield’ filters. The performance of
these four groups is also compared to both Government and AAA
bonds to provide context. From this analysis we can note the
following:
„„ Quality stocks and high yield stocks outperformed the
market.
„„ SGQI has outperformed them both.
CHART 6: Simulated performance of the SGQI Index versus other
alternative selections or indices.
1,000
900
800
700
600
500
400
300
200
100
0
SGQI
High Yield Equities
Government Bonds
Quality Equities
Equity Market
AAA Bonds
Source: SG Cross Asset Research, September, 2013. Simulated past
performance is not a reliable of future performance. Performance shown
for SGQI prior to May 15, 2012 and March 21, 2013 for SGQE is simulated.
Data is re-based to 100 to enable comparison between the different assets.
Performance does not include transaction costs.
„„ Despite the bull market in bonds, SGQI has outperformed
fixed income assets such as Government Bonds and AAA
Bonds (even adjusting for volatility).
5
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
P E R F O R MA NCE AND RI S K S TATI S T I C S
The table below shows the relative performance of SGQI and
SGQE versus a selection of similar indices. We can see that
European equities have out performed Global equities over
a one year period but only SGQE was higher over 5 years.
Both SGQE and SGQI have performed strongly over 5 years.
However, SGQI has suffered over a one year period as global
high yield stocks have been sold.
Total Return (%)
Over the last 12 months, the volatility of the SGQI Index has
been 8.29%, which is lower than that of SGQE (10.21%), and
the MSCI World Index (10.11%) of global equities. Finally, SGQE
and SGQI also delivered a good dividend yield (4.39% & 3.56%
gross respectively) versus 2.17% for MSCI World and 3.01% for
MSCI World Europe over the course of last year.
Price Return (%)
Yield (Total Return
– Price Return)
Annualized
Volatility (%)
Maximum Loss (%)
1 Year
5 Year
1 Year
5 Year
1 Year
5 Year
1 Year
5 Year
1 Year
5 Year
0.23
100.90
-3.33
59.13
3.56
41.77
8.29
9.41
11.08
11.08
MSCI World (EUR)
10.88
100.96
8.72
80.62
2.17
20.34
10.11
12.71
9.26
20.58
SG European Quality Income**
12.32
101.59
7.93
63.79
4.39
37.80
10.21
12.91
10.86
16.47
MSCI Europe
16.29
92.33
13.28
65.07
3.01
27.25
11.95
17.03
11.04
24.31
Index
SG Global Quality Income*
Source: SG Cross Asset Research, Bloomberg. May, 2014. *Performance shown prior to May 15, 2012 is simulated. ** Performance shown prior to March 21, 2013 is
a back-test. Performance does not include transaction costs. Simulated past performance is not indicative of future performance.
CHART 7: SGQI Index Performance*
250
SG Quality Income Index
MSCI World (in EUR)
200
MSCI World High Yield (in EUR)
MSCI World Minimum Volatility (in EUR)
150
100
50
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: SG Cross Asset Research, Bloomberg. May 2014. Performance shown prior to May 15, 2012 is simulated. Performance does not include transaction costs.
Simulated past performance is not indicative of future performance.
CHART 8: SGQE Index Performance*
300
SG European Quality Income Index
MSCI Europe (in EUR)
250
MSCI Europe High Yield (in EUR)
MSCI Europe Minimum Volatility (in EUR)
200
150
100
50
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: SG Cross Asset Research, Bloomberg. May 2014. Performance shown prior to March 21, 2013 is a back-test. Performance does not include transaction costs.
Simulated past performance is not indicative of future performance.
6
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
CU RREN T IN DEX CON S TITUE NT S FO R S G G LO BAL Q UALI T Y I NCO M E ( S G QI )
BREAKDOWN OF ASSETS BY GEOGRAPHY
BREAKDOWN OF ASSETS BY INDUSTRY
Australia
Canada
France
Hong Kong
Italy
Japan
Netherlands
Norway
Singapore
Spain
Sweden
Switzerland
United Kingdom
United States
Consumer Goods
Consumer Services
Health Care
Industrials
Oil & Gas
Telecommunications
Utilities
Country
Name
Country
Name
Australia
AGL ENERGY LTD
Singapore
SINGAP TECH ENG
Australia
AMCOR LTD
Singapore
SINGAPORE TELECO
Australia
APA GROUP
Spain
ENAGAS SA
Australia
COCA-COLA AMATIL
Sweden
HENNES & MAURI-B
Australia
SONIC HEALTHCARE
Sweden
TELIASONERA AB
Australia
TATTS GROUP LTD
Switzerland
SWISSCOM AG-REG
Australia
TELSTRA CORP
United Kingdom
BP PLC
Australia
TRANSURBAN GROUP
United Kingdom
BRIT AMER TOBACC
Australia
WESFARMERS LTD
United Kingdom
CENTRICA PLC
Australia
WOODSIDE PETRO
United Kingdom
IMPERIAL TOBACCO
Australia
WOOLWORTHS LTD
United Kingdom
INFORMA PLC
Canada
BAYTEX ENERGY CO
United Kingdom
NATIONAL GRID PL
Canada
ARC RESOURCES LT
United Kingdom
SEVERN TRENT
Canada
BCE INC
United Kingdom
SSE PLC
Canada
HUSKY ENERGY INC
United Kingdom
UNITED UTILITIES
Canada
SHAW COMM-B
United States
DUKE ENERGY CORP
Canada
TELUS CORP
United States
ALTRIA GROUP INC
Canada
THOMSON REUTERS
United States
AMERICAN ELECTRI
Canada
TRANSCANADA CORP
United States
AT&T INC
France
EUTELSAT COMMUNI
United States
CMS ENERGY CORP
France
SES
United States
CONS EDISON INC
Hong Kong
CLP HLDGS LTD
United States
DTE ENERGY CO
Italy
SNAM SPA
United States
ENSCO PLC-CL A
Japan
CANON INC
United States
LEGGETT & PLATT
Japan
EISAI CO LTD
United States
PINNACLE WEST
Japan
NTT DOCOMO INC
United States
PUB SERV ENTERP
Japan
TAKEDA PHARMACEU
United States
SCANA CORP
Netherlands
WOLTERS KLUWER
United States
SOUTHERN CO
Netherlands
ZIGGO NV
United States
TECO ENERGY INC
Norway
ORKLA ASA
United States
VERIZON COMMUNIC
Norway
TELENOR ASA
United States
XCEL ENERGY INC
Singapore
SINGAP PRESS HLG
Source: SG Cross Asset Research/Equity Quant, May 2014. The allocations refer to past allocations and past allocations are not a reliable indicator of future allocations.
7
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
CU RREN T IN DEX CON S TITUENT S FO R S G E URO P E AN Q UALI T Y I NCO M E ( S GQ E)
BREAKDOWN OF ASSETS BY GEOGRAPHY
BREAKDOWN OF ASSETS BY INDUSTRY
Denmark
Basic Materials
Finland
France
Consumer Goods
Germany
Consumer Services
Italy
Health Care
Netherlands
Industrials
Norway
Oil & Gas
Spain
Technology
Sweden
Telecommunications
Switzerland
Utilities
United Kingdom
Country
Name
Country
Name
Denmark
TDC A/S
Sweden
HOLMEN AB-B SHS
Finland
ELISA OYJ
Sweden
SKANSKA AB-B
Finland
NOKIAN RENKAAT
Sweden
TELIASONERA AB
France
EUTELSAT COMMUNI
Switzerland
SWISSCOM AG-REG
France
RUBIS
United Kingdom
BP PLC
France
SANOFI
United Kingdom
BRIT AMER TOBACC
France
SES
United Kingdom
CENTRICA PLC
Germany
DRILLISCH AG
United Kingdom
COBHAM PLC
Germany
FREENET AG
United Kingdom
ELECTROCOMPONENT
Germany
HUGO BOSS -ORD
United Kingdom
IMPERIAL TOBACCO
Germany
RTL GROUP
United Kingdom
INFORMA PLC
Italy
ENI SPA
United Kingdom
MICRO FOCUS INTL
Italy
SNAM SPA
United Kingdom
NATIONAL GRID PL
Italy
TERNA SPA
United Kingdom
PEARSON PLC
Netherlands
WOLTERS KLUWER
United Kingdom
PENNON GRP PLC
Netherlands
ZIGGO NV
United Kingdom
SEVERN TRENT
Norway
ORKLA ASA
United Kingdom
SSE PLC
Norway
TELENOR ASA
United Kingdom
TESCO PLC
Spain
ENAGAS SA
United Kingdom
UNITED UTILITIES
Source: SG Cross Asset Research/Equity Quant, May 2014. The allocations refer to past allocations and past allocations are not a reliable indicator of future allocations.
K EY RI S KS AND BE NEFIT S A SS OC I AT E D WI T H T HE S G Q E AND S G Q I I NDI C E S
KEY RISKS
KEY BENEFITS
»» Potential tracking error versus any equity benchmark
»» Dividend income and dividend growth are considered by
many to be the cornerstones of long-term equity returns.
High quality and high yielding equities can therefore provide
an attractive option for long-term investors.
»» Near-term underperformance is likely in a rapidly rising
market
»» Near-term likely to fall in absolute terms in declining
market even if outperforming in relative terms
»» High quality dividend income is less likely to fall in a
downturn, and more likely to rise during periods of inflation.
The strategy may therefore be more robust during times of
macroeconomic uncertainty.
»» SGQE & SGQI exhibit bond-like characteristics (income
and capital safety) with equity-like returns (capital growth
and relative inflation protection).
8
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
LYXOR ETF QUALITY INCOME
Lyxor’s Exchange Traded Funds(ETF) on the SG Global
Quality Income and SG European Quality Income Indices are
Luxembourg SICAV, UCITS compliant ETFs which are listed and
tradable on the London Stock Exchange. The objective of these
ETFs is to replicate the performance of the Index that they track.
There are three different variations of the Lyxor ETF Global
Quality Income NTR. The first two are priced in GBp and give
investors the choice to either receive the Dividend Yield (SGQP),
or have the dividends re-invested in the Fund (SGQL). The third
option is for investors who would prefer to invest in the SGQI
Index via a USD denominated fund.
There are also two versions of Lyxor UCITS ETF SG European
Quality Income NTR; SGQE which is tradeable in Euros and
SGQG which trades in GBp. Both of these funds distribute
income to investors.
Importantly investors in these ETFs will be exposed to currency
risk on any of the underlying companies that are listed in a
currency different to that of the ETF. If the exchange rate moves
against you this will impact the return that you receive.
HOW DO THE FUNDS TRACK THE INDEX?
In order to track their Indices, Lyxor ETFs purchase a basket
of physical assets to provide security to the fund, and a
Performance Swap (Swap) to provide the performance. A Swap
is a contractual agreement which is negotiated over-the-counter
(OTC) between two parties: the ETF and the issuer of the Swap,
which in Lyxor’s case is Societe Generale.
Under the terms of the Swap, Societe Generale commits to pay
the precise daily performance of the Benchmark Index, including
any dividends to the Lyxor ETF. In return, the Lyxor ETF pays
Societe Generale a fee for the SWAP arrangement, and the
performance of its physical assets, including any dividends.
This means that before taxes and replication costs, the daily
performance of the ETF is a precise replication of the Index.
SEGREGATED ASSETS
The performance of each fund is secured by a basket of UCITS
eligible physical assets that are owned by the fund and held in a
segregated account. Collateral is subject to stringent minimum
quality criteria. The level of the Collateral is managed daily in
order to maintain a target Counterparty Risk level of 0%.
ETF NAME
CCY
DIVIDEND
DISTRIBUTION
EPIC CODES
ISIN CODE
TOTAL
EXPENSE
RATIO*
Lyxor ETF Global Quality Income NTR
GBp
Semi-Annual
SGQP
LU0855671011
0.45%
Lyxor ETF Global Quality Income NTR
GBp
N/A
SGQL
LU0855692520
0.45%
Lyxor ETF Global Quality Income NTR
USD
N/A
SGQD
LU0855692520
0.45%
Lyxor UCITS ETF SG European Quality Income NTR
EUR
Semi-Annual
SGQE
LU0959210278
0.45%
Lyxor UCITS ETF SG European Quality Income NTR
GBp
Semi-Annual
SGQG
LU0959210278
0.45%
Source: Lyxor Asset Management, May, 2014
F U N D H OL DING S
The physical assets held in a Lyxor ETF have no impact on the performance of the fund, and as such, they can be different to
that of the Underlying Index. This means that regardless of the Benchmark Index, Lyxor ETFs can restrict the securities held
as collateral to highly liquid, high quality UCITS eligible stocks. The result is that the physical stocks held in a Lyxor ETF can
be more liquid, and better diversified than those of the indices that they follow.
All directly owned securities, counterparty risk levels, and fund information is published daily on our website,
www.sglistedproducts.co.uk.
9
expert OPINION
J u ne 2014
I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
I LL U STRATIVE RETURN S
The objective of the Lyxor ETF Global Quality Income NTR and
Lyxor UCITS ETF SG European Quality Income NTR are to
replicate the performance of the their Benchmark Index. This
means that before charges and fees the ETF will rise and fall
according to changes in the Index it tracks. The following table
provides a simple illustration of the returns that you could expect
to achieve from an investment in the Lyxor ETF Global Quality
Income NTR (SGQL) for example. It is important to note that
these figures to not take into account the Total Expense Ratio
or the impact of movements in the Euro/GBP exchange rate.
COST PER UNIT
AT INVESTMENT
SGQL INDEX
LEVEL AT
PURCHASE
% CHANGE IN
SGQI INDEX
SGQL INDEX
LEVEL AT SALE
PERFORMANCE
OF SGQL (%)
PAYOUT ON
SALE
PER UNIT
PROFIT/LOSS AT
SALE PER UNIT
11,361 p
1,161.00
+10
1,277.10
+10
12,497p
+ 1,136p
11, 361p
1,161.00
0
1,161.00
0
11,361p
0.00p
11, 361p
1,161.00
-1
1,044.90
-1
10,225p
- 1,136p
Please note: This is for illustrative purposes only and is based on an investment in The Lyxor Global Quality Income (SGQL) on October 22nd,2013 at the price of 11,361
pence per unit when the SG Global Quality Income Index NTR (EUR) was trading at 1,161.00 (Source Bloomberg). The figures do not include the impact of charges or
fees. The Total Expense Ratio for SGQL is 0.45% per annum. This amount is calculated and deducted daily from the value of SGQL at approximately 0.00152% per day.
The figures are examples only and used to illustrate the return that could be achieved based on a number of example Index levels that could occur.
K EY BEN EF IT S AND RI SK S OF E T F I NVE S T M E NT S
BENEFITS OF ETFS
RISKS OF ETFS
Visibility: Live intraday bid/ offer pricing on the London
Stock Exchange.
Capital at Risk: ETFs are tracking instruments. Their risk
profile is similar to a direct investment in the Underlying Index.
Investors’ capital is fully at risk and you may not get back the
amount you originally invested.
Underlying Risk: The underlying indices may be complex and
volatile.
Cost Efficiency: Low Total Expense Ratio (TER)* comprises of management fee and structural costs.
Replication Risk: The fund objectives might not be reached
due to unexpected events on the underlying markets which will
impact the index calculation and the efficient fund replication.
Transparency: All documents, counterparty information
and fund holdings are available on the website.
Counterparty Risk: Investors may be exposed to risks resulting
from the use of an OTC Swap with Societe Generale. In line
with UCITS guidelines, the exposure to Societe Generale
cannot exceed 10% of the total fund assets. Swap Exposure is
targeted at 0%.
Eligibility: SIPP, ISA, CGT, UCITS IV Funds.
Currency Risk: ETFs may be exposed to currency risk if the
ETF is denominated in a currency different to that of the Index
that it tracks. The Benchmark Index may be exposed to
Currency Risk if it is denominated in a currency different to that
of the constituents of the Benchmark Index. This means that
exchange rate fluctuations could have a negative or positive
effect on returns.
*The Total Expense Ratio (TER) covers all costs incurred by the Management Company to manage the underlying assets. It comprises of the Management Fee and
Structural Costs described as follows. The Management Fee represents the compensation for the Management Company services. The Structural Costs represent the
custodian fee, the administrative fee, the audit fee and all other operating costs that will be paid by the Management Company to operate the funds.
10
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I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
I M PO RTA N T INFORMATION
This publication should be treated as a marketing communication providing general investment recommendations and should not
be treated as a research report issued by Société Générale’s Research Department. This document has not been prepared in
accordance with regulatory provisions designed to promote the independence of investment research, and Société Générale is
not subject to any prohibition on dealing in the financial instrument or instruments ahead of the dissemination of this publication.
This publication includes investment recommendations issued from Société Générale’s investment Research department which
has set, in accordance with applicable regulation, effective administrative and organizational arrangements, including information
barriers to prevent and avoid conflicts of interest with respect to the investment recommendations contained in this publication. Research publications supporting this document were issued on their stated publication date and may have already been acted
upon by clients of Société Générale.
DI S C L A IMER
This document is issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit institution (bank)
authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority) and
the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation
Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the
Financial Conduct Authority are available from us on request.
The products described within this document are not suitable for everyone. Investors’ capital may be lost. Investors should not
deal in these products unless they understand their nature and the extent of their exposure to risk. The value of these products
can go down as well as up and can be subject to volatility due to factors such as price changes in the underlying instrument and
interest rates.
Prior to any investment in one of these products, investors should make their own appraisal of the risks from a financial, legal and
tax perspective, without relying exclusively on the information provided by us, both in this document and the Pricing Supplement
of the product which is available on the website www.sglistedproducts.co.uk. We recommend that investors consult their own
independent professional advisers.
Investors should note that holdings in these products will not be covered by the provisions of the Financial Services Compensation
Scheme, or by any similar compensation scheme. The securities can be neither offered in nor transferred to the United States.
Any statement in relation to tax, where made, is generic and non-exhaustive and is based on our understanding of the laws and
practice in force as of the date of this document and is subject to any changes in law and practice and the interpretation and
application thereof, which changes could be made with retroactive effect. Any such statement must not be construed as tax advice
and must not be relied upon. The tax treatment of investments will, inter alia, depend on an individual’s circumstances. Investors
must consult with an appropriate professional tax adviser to ascertain for themselves the taxation consequences of acquiring,
holding and/or disposing of any investments mentioned on this document.
Telephone calls may be recorded and/or monitored for training and quality purposes.
Societe Generale Listed Products | 0800 328 1199 | listedproducts@sgcib.com | www.sglistedproducts.co.uk
11
expert OPINION
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I N V E S T M E N T I N S I G H T S F R O M LY X O R ET F
I ND EX D I S C LAIMER
Without prejudice to its legal or regulatory obligations, Societe Generale may not be held responsible for any financial or other consequences that
may arise from investing in a product having as its underlying the index described herein (the “Index”), and investors are responsible, prior to making
any investment in a product having the Index as its underlying, for making their own appraisal and, if they deem it necessary, to seek and obtain
professional advice on the risks and merits of the product. This document does not constitute an offer, a solicitation, an advice or a recommendation
from Societe Generale to purchase or sell the Index, which cannot be invested in directly. The purpose of this document is simply to describe the
principles and main financial characteristics of the Index. The level of the Index may be subject to significant volatility due to, inter alia, the evolution
of the price of the underlying instrument(s) and of the interest rates. A product having the Index as underlying may be subject to restrictions with
regard to certain persons or in certain countries under national regulations applicable to such persons or in said countries. It is each investor’s
responsibility to ascertain that it is authorised to conclude, or invest into, this product. By undertaking such an investment, each investor is deemed
to certify to Societe Generale that it is duly authorised to do so. The Index is the sole and exclusive property of Societe Generale. Societe Generale
does not guarantee the accuracy and/or the completeness of the composition, calculation, dissemination and adjustment of the Index, nor of the
data included therein.
Societe Generale shall have no liability for any errors, omissions, interruptions or delays relating to the Index. Societe Generale makes no warranty,
whether express or implied, relating to (i) the merchantability or fitness for a particular purpose of the Index, and (ii) the results of the use of the Index
or any data included therein. Societe Generale shall have no liability for any losses, damages, costs or expenses (including loss of profits) arising,
directly or indirectly, from the use of the Index or any data included therein. The levels of the Index do not represent a valuation or a price for any
product referencing such Index. The Index rules (the “Index Rules”) define the calculation principles of the Index and the consequences on this
Index of extraordinary events which may affect one or several of the underlying programmes on which it is based. This document is of a commercial
and not of a regulatory nature. The accuracy, completeness or relevance of the information which has been drawn from external sources is not
guaranteed although it is drawn from sources believed to be reliable. Societe Generale shall not assume any liability in this respect. The market
information presented in this document is based on data at a given moment and may change from time to time. The potential performance
may increase or decrease as a result of currency fluctuations. The roles of the different teams involved within Societe Generale in the design,
maintenance and replication of the Index have been strictly defined. Where Societe Generale holds the product and other positions exposing it
to the Index for its own account, the replication of the Index is made in the same manner by a single team within Societe Generale, be it for the
purpose of hedging the product held by external investors or for the purpose of the positions held by Societe Generale acting for its own account.
Societe Generale may take positions in the market of the financial instruments or of other assets involved in the composition of the Index, including
as liquidity provider. Structured Solutions AG is the Calculation Agent of the Index.
MSCI DISCLAIMER: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior
written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any
financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this
information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all
warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without
limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the
information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are service marks of
MSCI and its affiliates or such similar language as may be provided by or approved in advance by MSCI.
Societe Generale Listed Products | 0800 328 1199 | listedproducts@sgcib.com | www.sglistedproducts.co.uk